They say you should never mix business with pleasure — and that applies to bank accounts, too. If you’re a freelancer, small business owner, or entrepreneur, chances are opening a business checking account could be a good move for you.
While both business and personal checking accounts allow you to safely store money and utilize those funds to pay bills and expenses, there are some important differences that make a business checking account a good idea for most folks who work for themselves. In fact, depending on the structure of your business, you may be legally obligated to open a business bank account — which is a pretty compelling argument to do so, we’d say.
Let’s take a closer look at how a business checking account differs from a personal checking account. We’ll cover:
• What is a business checking account and how it works
• What is a personal checking account and how it works
• What are the key differences between a business vs. a checking account
• Which one (or both) is right for you
What Is a Business Checking Account?
A business checking account is a checking account specifically designed for business owners. As such, they often include business-specific features, such as payroll or bookkeeping integrations, the ability to assign debit cards to employees, or simplified credit card payment processing.
In many other ways, however, a business checking account is a lot like the personal checking account you likely already have. It’s a (relatively) safe place to stash cash and use it for regular, day-to-day expenses by way of writing checks, using a debit card or initiating transfers. For example, it can allow you to:
• Pay suppliers
• Deposit payments from customers
• Pay employees
But it’s only to be used for business-related expenses!
How Does a Business Checking Account Work?
When thinking about a business checking account vs. a personal account, you’ll find many similarities. You open the account, fund it with some money, and, hopefully, go on to deposit more cash as profits from your business roll in.
You’ll likely have access to the account via a debit card and/or a checkbook, and will likely also be able to log into the account and manage it online. (Both digital-first and brick-and-mortar banks offer business bank accounts these days, and most feature some kind of virtual account management option.) Business banking products often bundle both a checking and savings account, so you can start creating a cushion for a rainy day.
However, as mentioned above, a business bank account may come with some additional, business-specific features. It may also come with higher fees and minimum account balance requirements than a personal checking account, not to mention requiring documentation to prove you do, in fact, have a business.
What Is a Personal Checking Account?
A personal checking account is, well, a checking account used for personal expenses. Just like a business checking account, it’s a place where you can stash your cash with relatively few worries and use it to pay bills and expenses using a debit card, checkbook, or transfer services. Many banks also make it easy to bundle a personal checking account with a personal savings account, which is a great place to stash your emergency fund.
Unlike business checking accounts, though, a personal account won’t include those fancy features we were talking about. On the bright side, though, it’s very possible to find free personal checking accounts, which can help you save cash on those pesky monthly maintenance fees.
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What Are Personal Checking Accounts Used For?
Personal checking accounts are commonly used for:
• Storing money earned through employment or other income streams
• Paying bills using transfer services or paper checks
• Making transfers to friends, family, and businesses
• Making point-of-sale purchases using a debit card
As their name suggests, personal checking accounts are designed to help you manage personal expenses and attend to your everyday money needs. Typically, a personal checking account is the hub of someone’s daily financial life.
What’s the Difference Between Business and Personal Checking?
Let’s recap what we’ve learned about the difference between business and personal checking accounts.
|Business Checking Accounts
|Personal Checking Accounts
|A place to safely store money and access it for regular business expenses
|A place to safely store money and access it for day-to-day personal expenses
|May come with additional business-friendly features, such as payroll and bookkeeping integration
|Designed for personal use; may offer person-to-person transfers and other useful features
|May come with a bundled business savings account
|May come with a bundled personal savings account
|Often come with minimum opening deposit or minimum monthly balance requirements and fees; you’ll need to offer documentation proving you have a business
|Many personal checking accounts are available for free
|Helps entrepreneurs separate out their business expenses for ease of accounting and remaining compliant with regulations
|Makes paying bills and other regular expenses more manageable, regardless of your source of income
Are Business Checking Accounts FDIC Insured?
Any business checking account worth its salt should be FDIC insured — or NCUA insured, if it’s opened and held at a credit union. The FDIC is a government agency that protects deposit accounts, such as checking accounts, and reimburses lost funds up to the $250,000 standard insurance amount in the event your bank fails. (Some banks participate in programs that extend the FDIC insurance to cover millions1.) The NCUA is a similar agency, but specifically geared toward credit unions.
The FDIC and NCUA insure business and personal accounts alike, but it’s always important to double-check and make sure the bank or financial institution you’re hoping to open an account with explicitly states that deposits are insured.
When Does Someone Need a Business Checking Account?
If you’re a small business owner — or even a freelancer — a business checking account might be a good idea, even if it’s not technically required. Keeping your business and personal expenses separate can help make accounting easier, simplify your tax reporting process, and help make your business look more legitimate to the IRS.
In addition, if you’re incorporating (i.e, operating as LLC, S corp, or other type of business entity), separating your business expenses from your personal expenses can help protect your assets in the event you get sued. Even if it’s not legally required, many accountants and law professionals recommend their clients open a business bank account for this reason.
A business bank account can help you:
• Separate your business and personal expenses, which can both protect your assets and make bookkeeping easier
• Help make your tax reporting easier, as all of your deductible expenses will be in one place
• Make it easier to see you business’s cash flow and make adjustments to your business model as needed, or valuate the business for other purposes
• Make your business look more legitimate to both the IRS and potential customers, vendors, and other parties you interact with professionally
Establish a relationship with a bank that could allow you to more easily take out a business loan or business line of credit in the future.
Can I Use the Same Bank for Personal and Business Banking?
In many cases, you technically can use your personal checking account for business banking… but doing so is generally considered ill-advised by experts for the reasons listed above. Just for starters, it makes separating out your expenses a lot harder — and you’ll definitely want to have a handle on those so you can get any deductions coming your way.
Case in point, the IRS explicitly recommends keeping separate business and personal bank accounts for record-keeping purposes. It’s easy to let it go by the wayside if you’re just starting up as a small business owner or entrepreneur, but consider whatever expenses the account incurs as part of your business start-up costs. It’s worth it in the long run!
What’s more, it’s a wise move to separate your business and personal accounts in the event that you ever get audited. Combined accounts can lead to a very challenging situation if you ever need to prove your business vs. personal cash flow, expenses, and other aspects of your banking life.
Choosing the Right Business Checking Account
When you are shopping for a business checking account, there are a few features that should be considered to help ensure that you find the right match. These include:
• Fees. Many business accounts have fees associated with them, and if you are able to get them waivered, the financial requirements (say, the amount you have held in the account) tend to be higher than for personal accounts.
• Cash deposit limits. Your bank may set a limit in terms of the amount of money you can put in the account per billing cycle. If you hit that amount, you may accrue a cash-handling fee.
• Transaction limits. Your business checking account may have a limit on the number of transactions they will handle for free per billing cycle. Go over that amount, and you may be charged.
• Interest. There are business accounts that offer interest on your balance. Do the math though to see if this should be a deciding factor in your choice of a bank. If fees are higher at the bank offering interest, you might wind up losing money in the long run.
• Bundled services. Your bank might offer some free features, like a business credit card or merchant services along with your checking account.
Depending on the nature of your business and how you handle your banking, some of these factors may matter more than others. Find the bank that gives you the most features and perks you are seeking with the lowest fees possible.
If you own your own business or earn freelance income, keeping your business expenses separate from your personal expenses can help simplify your life in many ways. A business bank account will help keep these finances separate, streamlining accounting and tax preparation, and protect you if you were ever faced business liability.
But let’s not forget that keeping your personal banking in tip-top shape is vital, too. That’s where the SoFi Checking and Savings bank account can help. When you sign up with direct deposit, you’ll get both checking and savings with absolutely zero account fees and earn a competitive APY just for letting us hold onto your funds.
What documents are required to open a business checking account?
In order to open a business checking account, you’ll need your regular, basic documents — like your government-issued picture ID — as well as business-specific documents such as your EIN and business license. Check with the bank you’re considering directly for full details on which documents are required
Can I open a business checking account without an LLC?
It depends on the financial institution, but yes, business accounts are available that don’t require the business owner to be incorporated in any way
Can I use a personal checking account for business?
You can — the question is whether or not you should. Separating your business and personal expenses can make your life, or your accountant’s life, a lot easier when it comes time to assess your business finances or pay taxes. In addition, there are special business banking features you might get if you opt for a business-specific account.
Photo credit: iStock/mapodile
1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.
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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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